§235-122  Taxation of an S corporation andits shareholders.  (a)  An election under section 1361(b)(3) and (e), or1362(a) of the Internal Revenue Code shall be effective for the purposes ofthis chapter.  Evidence of a valid election for federal purposes shall besubmitted to the department in such form and at such time the department mayprescribe.

(b)  Except as provided in the followingsentence, an S corporation shall not be subject to the tax imposed by section235-71.  If income of an S corporation is subject to federal income tax, thensuch income as modified by section 235-123, to the extent it constitutes incomeattributable to the State, shall be taxed at the highest marginal rate of taximposed on the net income of corporations.  If an S corporation is required topay a tax to this State by reason of the preceding sentence, then the incomeattributable to the State of the S corporation shall be reduced by the amountof the tax.

(c)  Each shareholder's pro rata share ofincome attributable to the State and each resident shareholder's pro rata shareof income not attributable to the State, to the extent modified pursuant tosection 235-123, shall be taken into account by the shareholder in the mannerprovided in section 1366 of the Internal Revenue Code for the purposes ofsection 235-4 and shall be taxable under section 235-51. [L 1990, c 16, pt of§1; am L 1997, c 297, §5]